The Simple Explanation Of Debt Restructuring Process You Should Be Aware
Restructuring is a term that has a broad definition of the business world. When the restructuring term used, it will be divided into two, namely the debt restructuring and corporate restructuring. Debt restructuring is done to find a solution to the debt problems in the hope that the company can improve its operations. Debt restructuring is generally found in companies that have a problem with cash flow. The worst of these events is the bankruptcy of the company.
Corporate restructuring is done by changing the form of organization of the company. In contrast to the debt restructuring, corporate restructuring is not only done by companies that have difficulties in the financial conditions. Restructuring the company is also carried out for the purpose of developing or expanding companies. When viewed in more detail, debt restructuring and corporate restructuring have many variations in implementation. This article will explain in more detail about the characteristics of both restructuring types. This article will provide an introduction to the beginning of the two types of restructuring. You can gain a real picture of the various types of debt restructuring and will not feel confused about the terms that often appear in the debt restructuring.
When a debt problem occurs between two parties, namely the debtor and the creditor, then the two sides will have their own views. The views are extremely dependent with http://debt-consolidation-services-review.toptenreviews.com/ different interest.
Once a company has estimated the amount of debt that cannot be returned by the operational activities that have taken place, then there are some solutions that could be considered:
- Increase the number of new loans in the hope of a new debt can be used to improve the profitability and repay the old one. This is quite risky because the company may not be able to anticipate the debt with higher numbers. Getting a new loan is also not an easy thing for a weak company. Lenders will require assurance that the debtor has the ability to repay the loan either by the prospect of new business development or improve its management.
- Stopping the overall operations for a while. If the situation does not improve then operations can be suspended indefinitely and could lead to liquidation.
- Consider to negotiate with the creditors on a deal of debt to be paid. This process is also called debt restructuring.
- The main interest of the lender is usually located on the principal repayment of the loan granted to the company plus a return on investment rather than on liquidation of assets.
- The process of liquidation usually provides lower returns to the creditor.
- Debt restructuring will provide the opportunity for creditors to avoid the occurrence of Non-Performing Assets (NPA).
Troubled debt settlement through debt restructuring can basically be solved in three ways:
- First, Make a payment at the time of restructuring.
- Second, Modifying the terms of the debt at the time of restructuring.
- Third, the combination of the first point and the second point.
Whatever steps are taken, sides, debtors and creditors must have mutual trust each other because if it is ignored, it will cause a failure in the debt restructuring process.